Estate planning

It’s never too early to start making plans for your family and making the right financial decisions to support them when you’re gone.

What is Estate Planning?

Estate planning is a wide-ranging term for the plans we make for our assets in life and when we pass on. An estate plan details your total assets which include your house, accounts, and possessions with how you would like these to be managed once you pass away. A Financial Planner can help ensure your estate plan is constructed in the most efficient way and in line with your wishes.

The common misconception is that we don’t need to worry about things like wills and inheritance tax (IHT) until later in life. In fact, the earlier we start planning, the better it is for everyone, financially and emotionally.

Estate planning is often done in conjunction with other financial planning work. That’s because, when done well, it ensures you have the money you need to live comfortably and the confidence to help others in your life. For example, knowing how much you need to live on could mean there’s a way to gift your inheritance early and enjoy the benefit of seeing the next generation achieve their goals.

What should your estate plan include?

Your estate plan needs to include anything you own that is of monetary value

• Your main residence and any additional properties or land.
• Money in bank accounts, ISAs and stocks and shares
• Household items
• Foreign assets
• Money owed (for example, salary or refunds from household bills)
• Vehicles including cars, boats and caravans
• Payments triggered by death, such as a life insurance policy or a lump sum death benefit from a pension
• “Digital” assets such as family photos, social media profiles and music collections, which can be treated as treasured possessions

You’ll need to value joint assets, which varies depending on where you are in the UK, and the nature of the ownership – either joint tenants or tenants in common (or joint owners and common owners in Scotland).

There are also rules around gifts that have been made, so it is best to discuss this with your Financial Planner.

Inheritance tax

Managing the impact of inheritance tax (IHT) is a big part of estate planning. IHT is a tax you pay on your estate that isn’t covered by any available allowances, such as the Nil Rate Band and Residence Nil Rate Band. It is triggered when you die and is usually paid by whoever inherits your estate. It is often described as the most hated tax because of the stress it causes for those who are grieving at the time.

Fortunately, there are ways to mitigate the impact of the tax by working with a Financial Planner. Making full use of your allowances and exemptions can reduce the amount of tax due on your estate and it can financially benefit your family members too.

Some of the strategies to consider include:

• Getting a life insurance policy for the value of the tax bill
• Taking advantage of gifting rules to make gifts to family, loved ones and charities
• Passing on your pension early and making use of other assets to provide retirement income

What is a trust?

Trusts are commonly part of an estate plan, which are used to pass assets down to future generations.

They can also protect assets in several events such as divorce and bankruptcy and poor financial management by the beneficiary.

In recent years, trusts have gained popularity because they sit outside of the main tax system, although they are subject to charges and must be registered with HMRC, unless they are specifically excluded.

The Financial Conduct Authority do not regulate tax planning, will writing or trusts.

The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.